LUCY FARNDON COMMENT: Getting a grip on pensions

As the pension industry's most influential fund managers and trustees gather in Edinburgh today for the National Association of Pension Funds annual conference, many will be asking why the state of the nation's retirement benefits is so often pushed to the bottom of the pile by politicians.

For a government paralysed by its own economic incompetence, a 'long-term' vision only goes so far as the summer months following the General Election.

Treasury number crunchers are already preparing detailed spending cuts from their bunker in Whitehall - apparently a top-secret room is plastered with sketches detailing where the axe could fall.

Neglected: The state of the nation's retirement benefits is often ignored by politicians

These calculations will be offered up to whoever emerges victorious from the election, making it easier for early action against the deficit while the nation is still in an expectant mood.

But while the focus has rightly shifted towards the need to reduce the budget shortfall, it is imperative that the first strike does not leave too much collateral damage along the way. Executives and business lobby groups have already made their concerns clear.

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Labour and the Tories are cognisant of the risks of using big corporates as cash cows.

Direct tax hikes on businesses look unlikely, when rising profits will filter through to the tax take anyway.

Far easier to raise taxes where the burden is seen to be shared more widely - such as broadening out VAT. Or, a favourite of politicians of either persuasion, the removal of so-called tax breaks.

The pensions industry has been one of the hardest hit by this. Taking away a tax benefit is less controversial because it conveys the impression that the recipient was lucky to get it in the first place.

But the result can be just as devastating. Within weeks of coming to power in 1997, Labour robbed savers of £100bn by scrapping tax relief on dividends for pension funds.

This fired the starting gun on the closure of final salary schemes by dramatically cutting the returns that could be made for employees.

The removal of tax relief on pension contributions for high earners from April 2011 is yet another raid that could have unintended consequences.

While few earning more than £112,000 will end up on the breadline in old age, it is these highly paid executives who make the decisions about their workforce pensions.

There is little incentive for them to keep gold-plated schemes open if they can't benefit themselves.

The NAPF knows that any calls to reverse tax changes will fall on deaf ears.

So this week it is more likely to push the government to take small, but achievable steps to help the pensions industry.

A pledge in the budget to issue more long-dated and index-linked gilts could give much needed security to pension funds needing to match their long term liabilities.

And who knows, it may end up being a cheaper way for the government to issue its debt.

Footsie folly

On the first anniversary of the FTSE 100's lows hit during the financial panic of last March, shares on the London Stock Exchange look to be in a much healthier place.

It seems hard to imagine that the blue chip index was languishing below 3,500 just 12 months ago, having now recovered to pre-Lehman collapse levels.

Despite a pause for breath yesterday, there is little to suggest that equity prices are on the verge of sinking back down again.

But investors ought to be cautious. There are many wise heads suggesting that the stock market has got ahead of itself, helped by the injection of £200bn by the Bank of England's quantitative easing policy.

This economic stimulus has now come to an end. Other support measures for the banking sector will also be gradually withdrawn over the next couple of years, draining cash out of the financial system.

And European and American policymakers are already beginning the removal of fiscal props put in place during the economic crisis.

At the same time as the sticking plaster is being removed, new rules requiring greater liquidity and capital cushions at financial institutions are being introduced.

This means that after a period of relative calm there is a danger that old wounds could be reopened again.

The Tripartite authorities are alive to such risks, with the Financial Services Authority having announced this week that it will hold fire for now on tougher liquidity requirements.

The Bank of England has left the option open of restarting its bond purchase programme.

But as fears escalate about the safety of sovereign debt of nations including our own, it is hard to feel optimistic.